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Case Law Details

Case Name : Bharat Sanchar Nigam Ltd. Vs DCIT (ITAT Rajkot)
Appeal Number : I.T.A. Nos. 400 & 401/Rjt/2018
Date of Judgement/Order : 05/01/2024
Related Assessment Year : 2009-10

Bharat Sanchar Nigam Ltd. Vs DCIT (ITAT Rajkot)

Introduction: In a significant ruling that will interest taxpayers and tax professionals alike, the Income Tax Appellate Tribunal (ITAT) in Rajkot has delivered a judgment in the case of Bharat Sanchar Nigam Ltd. Vs Deputy Commissioner of Income Tax (DCIT). The case revolves around the issue of whether Bharat Sanchar Nigam Limited (BSNL), the appellant, was in default for not deducting Tax Deducted at Source (TDS) on trade discounts given to distributors. This ruling, pertaining to the assessment year 2009-10, clarifies the application of Sections 201(1) and 201(1A) of the Income Tax Act, 1961, in cases where the taxpayer has deducted TDS at appropriate rates.

Detailed Analysis:

The crux of the dispute lies in the interpretation of TDS provisions applicable to trade discounts offered by BSNL to its distributors. BSNL sold pre-paid vouchers and cards to various distributors at a rate lower than the face value, with the difference being treated as a trade discount. The Assessing Officer (AO) had initially passed an order under Sections 201(1)/201(1A) of the Act, deeming BSNL to be an “assessee in default” for failing to deduct TDS on this difference, which was considered as “commission” paid to the distributors.

BSNL contested this finding, arguing that it had complied with TDS provisions by deducting taxes at appropriate rates on these trade discounts, effectively challenging the AO’s position that treated these discounts as commission subject to TDS under Section 194H of the Act. The appeal was initially dismissed by the CIT(A), leading to BSNL’s further appeal to the ITAT.

The ITAT’s decision hinged on whether BSNL had indeed deducted TDS at the appropriate rates on the trade discounts/commission paid to its agents. After reviewing the submissions and evidence provided by BSNL, including a tabular chart with supporting documents demonstrating compliance with TDS deductions at the correct rates, the Tribunal found merit in BSNL’s argument. It concluded that if BSNL had indeed deducted TDS appropriately, then invoking Sections 201(1)/201(1A) was unwarranted, as the company could not be considered an “assessee in default.”

Conclusion: The ITAT Rajkot’s ruling in favor of BSNL underscores a crucial aspect of tax compliance, emphasizing that proper adherence to TDS provisions exonerates taxpayers from being deemed as defaulters. This case serves as a precedent, highlighting the importance of ensuring that all TDS deductions are made accurately and in accordance with the law. The Tribunal’s decision to remand the case back to the CIT(A) for further verification ensures that justice is served through a meticulous examination of the facts. This ruling not only provides clarity on the application of TDS provisions but also reinforces the principle that compliance with tax laws, especially in matters of TDS deductions, is paramount. By allowing the appeals for statistical purposes, the ITAT has paved the way for a fair reassessment of BSNL’s tax obligations, ensuring that due process is followed in determining the company’s compliance with TDS regulations.

FULL TEXT OF THE ORDER OF ITAT RAJKOT

These appeals have been filed by the assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals)-8, (in short “Ld. CIT(A)”), Ahmedabad in Appeal No. CIT(A)-8/223/10818/16-17 vide order dated 11.09.2017 passed for Assessment Year 2009-10.

2. The assessee has taken the following grounds of appeals:-

ITA No. 400/Rjt/2018 (A.Y. 2009-10)

“1. The Ld. C.I.T. (A) has erred in law and facts in confirming actions of the Ld. A.O. treating the assessee as liable for making no TDS and interest charging thereon in respect of discount payment and passing order U/s. 201(1) / 201(1A) and raising demand of Rs. 5,03,229/- (2,56,749 + 2,46,479). The same needs cancellation.

2. The Ld. C.I.T. (A) has erred in law and facts in confirming actions of the Ld. A.O. treating the assessee as liable for making no TDS and in respect of discount payment and passing order U/s. 201(1) and raising demand of Rs. 2,56,749/-. The same needs cancellation.

Section 201(1) 201(1A) inapplicable if TDS deducted at Correct Rates

3. The Ld. C.I.T. (A) has erred in law and facts in confirming actions of the Ld. A.O. treating the assessee as liable for making no TDS and interest charging thereon in respect of discount payment and passing order U/s. 201(1A) and raising demand of Rs. 2,46,479/-. The same needs cancellation.

4. The Ld. C.I.T. (A) has erred in law and facts in not accepting that no reasonable opportunity was provided to the appellant by the Ld. A.O. The order being bad in law needs cancellation.

5. The Ld. C.I.T. (A) has erred in law and facts in not accepting that the order passed by the Ld. A.O. is bad in law, illegal and unsustainable. The same needs cancellation.

6. The Ld. C.I.T. (A) has erred in law and facts in not accepting that the order passed by the Ld. A.O. is without statutory authority and in excess of jurisdiction. The same needs cancellation.

7 The Ld. C.I.T. (A) has erred in law and facts in not considering that the order passed by the Ld. A.O. is passed beyond statutory time limit as provided and hence needs cancellation being bad in law. “

8. Without prejudice, the Ld. C.I.T. (A) has erred in law and facts in not providing reasonable opportunity to the appellant. The order needs cancellation.

9. Taking into consideration over all legal, statutory and settled law beside factual aspects of the case the order passed by the Ld. A.O. ought to have been cancelled. The order needs cancellation.

10. The appellant craves leave to reserve his right to amend / alter / add and / or substitute any / all grounds of appeal before the actual hearing takes place.”

ITA No. 401/Rjt/2018(A.Y. 2009-10)

“1. The Ld. CIT(A) has erred in law and facts in rejecting the application of the assessee requesting rectification. The same needs rectification.

2. The Ld. CIT(A) has erred in law and facts in rejecting the application of the assessee requesting rectification without passing speaking order. The same needs rectification.

2. The Ld. CIT(A) has erred in law and facts in confirming tax liability without proper opportunity to the assessee. The same needs rectification.

3. The Ld. CIT(A) has erred in law and facts in confirming tax liability in violation of principals of natural justice. The same needs rectification.

4. Without prejudice, the order confirmed by the Ld. CIT(A) is passed by the Ld. A.O. beyond limitations prescribes needs cancellation. The same needs rectification

5. Taking into consideration the legal, statutory, factual and administrative aspects, determination of TDS liability ought to have been rectified as per return of income without any modification, the same being in order.

6. Without prejudice, the order being bad in law deserves annulment.

7. Without prejudice, no adequate, sufficient and reasonable opportunity has been provided at the time of assessment stage. The same needs rectification.

8. Without prejudice, no adequate, sufficient and reasonable opportunity has been provided at the time of appellate stage. The same needs rectification.

9. Without prejudice, the determination is framed beyond statutory time limit. The same needs rectification.

10. The appellant craves leave to add/alter/amend and/or substitute any or all ground of appeal before the actual hearing takes place.”

3. These are appeals filed by the assessee with respect to the issue of demand raised on the assessee for non-deduction of tax at source under Section 194H of the Act on sale of pre-paid vouchers and cards to various distributors at a rate lower than the face value. In ITA No. 400/Rjt/2018, the assessee is in appeal before us against the order passed by Ld. CIT(A) dismissing the appeal of the assessee against the order passed by the AO under Section 201(1)/201(1A) of the Act holding the assessee to be an “assessee in default” for non-deduction of tax at source. The second appeal in ITA No. 401/Rjt/2018 relates to order passed by Ld. CIT(A) dismissing the rectification application filed by the assessee contending that since the assessee has already deducted taxes at source on trade discounts under Section 194H of the Act, the assessee could not be held to be an assessee in default under Section 200 of the Act. Since common issues for consideration are involved for both the years under consideration, both the appeals are being disposed of by way of a common order.

4. The brief facts of the case are the assessee is engaged in the business of telecom operations and providing telecom services. During the year under consideration, the assessee has sold pre-paid vouchers and cards of various face value to distributors at lower rate than its face value. The difference of the MRP and price charged from distribution is the trade discount passed on to the retailers. The Assessing Officer passed order under Section 201(1)/201(1A) of the Act holding that the assessee is an “assessee in default” on account of non-deduction of tax at source on the difference between the face value of prepaid vouchers and amounts actually received by the assessee on distribution of prepaid vouchers, by treating such difference as “commission” paid to the distributors. The Assessing Officer / TDS Officer passed an order holding that the assessee was liable to deduct TDS on such difference, being commission paid to distributors under Section 194H of the Act. The appeal of the assessee against the aforesaid order before Ld. CIT(A) was also dismissed by the Ld. CIT(A) by holding that the distributors was acting as an “agent” of the assessee and therefore, the assessee was liable to deduct taxes under Section 194H of the Act. Separately, the assessee also filed rectification application under Section 154 of the Act dated 09.07.2018 before the CIT(A)-8, Ahmedabad submitting that irrespective of treatment of trade discount as “commission” by the Department, the assessee had duly deducted taxes at source on such trade discount / commission to it’s distributors and, accordingly, the assessee could not be held to be an “assessee in default” in the first instance, having deducted taxes at source on such alleged commission income. The aforesaid application was also dismissed by the Ld. CIT(A), against which the assessee is in appeal before us.

5. The limited issue for consideration before us is that the assessee has contended that it has made due compliance of TDS provisions and the assessee has deducted taxes at the appropriate rates at the time of giving trade discount / commission to it’s agents and, accordingly, the assessee could not be held to be an “assessee in default” in the first instance, since it has already deducted taxes at source at the appropriate rates. However, we observe that the Department has not analyzed this aspect / contention of the assessee that since the assessee has already deducted taxes at source at appropriate rates, there is no question of invoking the provisions of Section 201(1)/201(1A) since the assessee cannot be held to be an “assessee in default” for non-deduction of TDS, when assessee has already deducted taxes at source appropriate rates. Accordingly, in the interest of justice, the matter is being restored to the file of the Ld. CIT(A) for carrying out the necessary verification as to whether the assessee has deducted taxes at source on such discounts / commission given to it’s agents, as contended by the assessee. Notably, the assessee has also furnished tabular chart alongwith supporting documents to demonstrate that TDS at appropriate rates has been deducted on such trade discount / commission given to it’s agents. Accordingly, the matter is being restored to the file of Ld. CIT(A) for carrying out the necessary verification, as directed above.

6. In the result, both the appeals of the assessee are allowed for statistical purposes.

This Order pronounced in Open Court on 05/01/2024

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